comprehensive annual financial report...4250 cook road houston, texas 77072 comprehensive annual...

4250 Cook RoadHouston, Texas 77072

www.aliefisd.net

Comprehensive AnnualFinancial Report

For the Year EndedAugust 31, 2019

Alief Independent School District

Prepared by the Business Services Division:

Charles Woods

Deputy Superintendent of Business Services

Deanna Wentz, CPA

Assistant Superintendent of Finance

Grace Chang, CPA

Controller

Comprehensive Annual Financial Report

For the Year Ended August 31, 2019


4250 Cook Road

Houston, Texas 77072

www.aliefisd.net

Alief Independent School District Comprehensive Annual Financial Report

For the Year Ended August 31, 2019

Table of Contents

Exhibit/

Table Page

Introductory Section Title Page Table of Contents Principal Officials and Advisors 1 Organizational Chart 2 Letter of Transmittal 3 Certificate of Excellence in Financial Reporting 10 Certificate of Achievement for Excellence in Financial Reporting 11

Certificate of Board 12

Financial Section

Report of Independent Auditors 13

Management’s Discussion and Analysis 16

Basic Financial Statements Government-Wide Financial Statements Statement of Net Position A-1 28 Statement of Activities B-1 29

Fund Financial Statements Governmental Funds Balance Sheet – Governmental Funds C-1 30 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position C-2 31 Statement of Revenues, Expenditures, and Changes in Fund Balance – Governmental Funds C-3 32 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance of Governmental Funds to the Statement of Activities C-4 33

Proprietary Funds Statement of Net Position – Proprietary Funds D-1 35 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Funds D-2 36 Statement of Cash Flows - Proprietary Funds D-3 37 Fiduciary Fund Statement of Fiduciary Assets and Liabilities – Agency Fund E-1 38 Notes to the Basic Financial Statements 39 Required Supplementary Information Schedule of Revenues, Expenditures, and Changes in Fund Balance - Original Budget, Final Amended Budget, and Actual – General Fund F-1 75 Schedule of the District’s Proportionate Share of the Net Pension Liability of a Cost-Sharing Multiple-Employer Pension Plan – Teacher Retirement System of Texas (TRS) F-2 76 Schedule of District’s Contributions to the Teacher Retirement System Pension Plan F-3 78

Alief Independent School District Comprehensive Annual Financial Report

For the Year Ended August 31, 2019 Table of Contents

Exhibit/ Table Page

Financial Section (continued) Required Supplementary Information (continued) Schedule of the District’s Proportionate Share of the Net OPEB Liability – Teacher Retirement System of Texas (TRS) F-4 80 Schedule of District’s OPEB Contributions to the Teacher Retirement System F-5 81 Notes to Required Supplementary Information 83

Other Supplementary Information Combining and Individual Fund Statements and Schedules Schedule of Revenues, Expenditures, and Changes in Fund Balance - Original Budget, Final Amended Budget, and Actual – Debt Service Fund G-1 85 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Original Budget, Final Amended Budget, and Actual - Food Service Program H-1 86 Combining Statement of Net Position – Internal Service Funds I-1 87 Combining Statement of Revenues, Expenses, and Changes in Net Position – Internal Service Funds I-2 88 Combining Statement of Cash Flows – Internal Service Funds I-3 89 Statement of Changes in Assets and Liabilities – Agency Fund J-1 90

Schedule of Delinquent Taxes Receivable K-1 91

Statistical Section (Unaudited) Financial Trends Net Position by Component 1 93 Changes in Net Position 2 95 Fund Balances of Governmental Funds 3 99 Changes in Fund Balances – Governmental Funds 4 101

Revenue Capacity Assessed Value and Actual Value of Taxable Property 5 103 Property Tax Rates - Direct and Overlapping Governments 6 104 Principal Taxpayers 7 106 Property Tax Levies and Collections 8 107

Debt Capacity Ratios of Outstanding Debt by Type 9 108 Ratios of Net General Obligation Bonded Debt Outstanding 10 109 Computation of Estimated Direct and Overlapping Debt 11 110

Demographic and Economic Information Demographic and Economic Statistics 12 111 Principal Employers 13 112

Operating Information Full-Time Equivalent District Employees by Position 14 113 Operating Statistics 15 115 Teacher Base Salaries 16 117 School Building Information 17 118

Introductory Section


Principal Officials and Advisors

Board of Trustees

Length of Term Board of Trustees Service Expires Occupation Ms. Ann Williams, President 12 Years 2023 Educator Dr. Lily Truong, Secretary 4 Years 2023 Educational Consultant Ms. Darlene Breaux, Vice President 2 Years 2021 Education Administration Ms. Jennifer Key, Assistant Secretary 2 Years 2021 Retired Ms. Natasha Butler, Member 2 Years 2021 Accountant Mr. Rick Moreno, Member 12 Years 2023 Paramedic Mr. John Nguyen, Member 2 Years 2021 Computer Technician

Administrative Officials

Length Official Position of Service Mr. H.D. Chambers Superintendent 9 Years Mr. Charles Woods Deputy Superintendent of Business Services 29 Years Ms. Ava Montgomery Deputy Superintendent of Curriculum and Instruction 24 Years Ms. Deanna Wentz Assistant Superintendent of Finance 24 Years

Consultants and Advisors

Hunton Andrews Kurth, L.L.P. Bond Counsel – Houston, Texas

USCA Municipal Advisors, L.L.C.

Financial Advisor – Houston, Texas

Whitley Penn, L.L.P. Independent Auditors – Houston, Texas

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“Preparing students for tomorrow—Caring for them today”

P.O. Box 68 * Alief, Texas 77411 * (281) 498-8110 * Fax: (281) 988-3039 Administrative Services Division

January 21, 2020 Members of the Board of Trustees and Citizens of the Alief Independent School District State law requires that all general-purpose local governments publish within 150 days of the close of each fiscal year a complete set of financial statements presented in conformity with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the comprehensive annual financial report of the Alief Independent School District for the fiscal year ended August 31, 2019. This report consists of management’s representations concerning the finances of the District. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. In order to provide a reasonable basis for making those representations, management of the District has established a comprehensive internal control framework that is designed to protect the government’s assets from loss, theft, or misuse. Additionally, the internal control framework is designed to compile sufficient reliable information for the preparation of the District’s financial statements in conformity with GAAP. Because the costs of internal controls should not outweigh their benefits, the District’s comprehensive framework of internal controls has been designed to provide reasonable assurance rather than absolute assurance that the financial statements will be free from material misstatement. To the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The financial statements of the District have been audited by Whitley Penn, L.L.P., a firm of licensed certified public accountants. The goal of the independent audit is to provide reasonable assurance that the financial statements of the District for the fiscal year ended August 31, 2019 are free of material misstatement. The independent audit involves examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditors concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the District’s financial statements for the fiscal year ended August 31, 2019 are fairly presented in conformity with GAAP. The independent auditors’ report is presented as the first component of the financial section of this report. The independent audit of the financial statements is part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the District’s separately issued Single Audit Report.

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The comprehensive annual financial report is presented in three sections: introductory section, financial section, and statistical section. The introductory section includes this transmittal letter, the District’s organizational chart, and a list of principal officials and advisors. GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The District’s MD&A can be found immediately following the report of independent auditors. The statistical data section includes selected financial and demographic information, generally presented on a multi-year basis. Profile of the District The Alief Independent School District, established in 1917, encompasses 39.1 square miles in southwest Harris County. The District is an independent political subdivision of the State of Texas governed by an elected board of trustees. The board is elected to staggered four-year terms by the District’s residents. Based on legislative authority codified in the Texas Education Code, the Board (1) has exclusive power to manage and govern the District; (2) can acquire and hold real and personal property; (3) shall have power to levy and collect taxes and to issue bonds; (4) can contract for appointed officers, teachers, and other personnel as well as for goods and services; and (5) has the right of eminent domain to acquire real property. The District is located primarily within the City of Houston and totally within Harris County, Texas. The District is not included in any other governmental reporting entity and there are no component units. Any charter school within District’s boundaries is funded separately by the State’s Foundation School Program based on their student attendance as well as their program participation. The Alief Independent School District has a population of approximately 268,000 and employs approximately 6,600 employees. These employees provide educational services for the 45,616 students enrolled in the Alief Independent School District. The twenty-four elementary schools (pre-kindergarten through fourth or fifth grade), six intermediate schools (fifth and sixth grades), six middle schools (sixth or seventh grade through eighth grade), two ninth grade centers, four high schools (ninth grade through twelfth grade), and one early college high school, are accredited by the Southern Association of Colleges and Schools and the Texas Education Agency (TEA). A list of school buildings with year of construction can be found in the Statistical Section. The Alief Independent School District provides a full range of educational services appropriate to grade levels pre-kindergarten through twelfth grade. These include regular and enriched academic education, special education for handicapped students, occupational education, and educational services for those with limited English proficiency. These basic programs are supplemented by a wide variety of offerings in fine arts, athletics, and other extracurricular programs. Budgeting The annual budget serves as the foundation for the District’s financial planning and control. Each school district in Texas is required by law to prepare annually a budget for the General Fund, the Food Service Program, and the Debt Service Fund. The budget process begins in January of each year with the preparation of the Long-Range Plan. The enrollment projections contained in this plan form the basis for significant budgetary decisions including per pupil allocations to each campus, instructional staffing allocations, and other required service levels. Once the Long-Range Plan is approved, the Board of Trustees can begin discussions concerning budget strategies and priorities, and establish the budget calendar. Personnel units are allocated to each campus based on projected student enrollment following state mandated ratios, as applicable. Each campus receives a basic allotment per student to be used for supplies, materials, equipment, staff development and other appropriate instructional costs. Decisions concerning utilization of this allocation are made by the site-based decision making teams. Budgets for non-campus units are developed by department heads and reviewed by the Budget Committee. Following the budget development process, consolidated budgetary information is presented to the Board of Trustees in workshops and regular meetings. The proposed budget must be prepared by August 20th for a September 1st fiscal year start date. The Board President must call a board meeting for the purpose of discussing and adopting the budget and the tax rate. A notice of this meeting is required to be published at least 10 days, but not more than 30 days before the public meeting. Budget-to-actual comparisons are provided in this report for each individual governmental fund or program for which an appropriated annual budget has been adopted.

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Profile of the District (continued)

Budgeting (continued) The District maintains budgetary controls within all of its financial systems to ensure compliance with all the statutory provisions of the Texas Education Agency. The budget may be amended during the year to address unanticipated or changing needs of the District. Changes to functional expenditure categories, revenue objects, or other sources and uses accounts require Board approval. However, budget changes not requiring an increase in total appropriations and within functional categories may be approved by management without Board approval. Expenditures may not legally exceed budgeted appropriations, as amended, at the function level by fund. Outstanding encumbrances at the end of the fiscal year are represented as assigned fund balance and are treated as expenditures in the following year upon receipt of the goods and services. Factors Affecting Financial Condition The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the District operates. Local Economy The local economy is based predominantly on commercial and financial activities. Shell Development Company’s Westhollow Research Center is situated in the western portion of the District. Chevron Chemical, a Halliburton Company, is also located in the District. Westchase Houston, a 1,198-acre master planned community, has continued to be developed in the northeast quadrant of the District. The Beltway Development encompasses 400 acres restricted for a business park, retail and commercial enterprises, townhouses and apartment units. Property values increased 2% for 2018-19 after a 4% increase in the previous year. The increase is mostly in residential properties. Approximately 49% of Alief students reside in apartments within the District. Since apartment construction, occupancy rates, and development of residential subdivisions heavily influence enrollment rates, District personnel carefully monitor these factors throughout the year.

Enrollment has varied by +/- 1% to 2% each year with an overall decrease of approximately 1,800 students in the last five years. These enrollment fluctuations are primarily attributable to changes in apartment occupancy rates and competition from charter facilities. Enrollment remained basically flat in 2017-18 with a 183 student (0.4%) decline. In 2018-19, enrollment decreased by 732 students (1.6%). The projected enrollment for 2019-20 is 45,299 – a decrease of 0.7% or 317 students. State Funding and Tax Levy The State of Texas provides funding for public education via a financing formula which weights student attendance levels, property value per student, the District’s tax effort, and regional variations in payroll and other costs. The District is considered a “property-poor” school district because the assessed value of property per student is lower than the Equalized Wealth Level of $319,500. The Texas Legislature meets biennially, during odd numbered years. During the last three Legislative sessions the structure of the school finance system remained relatively unchanged, with some increases provided in the funding elements. The current State funding formulas are summarized as follows:

Tier I of the funding formula allots an amount per student ($5,140 for 2018-19) to each school district based on average daily attendance (ADA) with additional weight given for special programs. From the total Tier I allotment, a deduction is made for the local district’s share based on the individual district’s property tax base multiplied by a constant tax levy of $1.00 (or the compressed rate if the compressed rate is not $1.00) per $100 of assessed taxable property value. The remainder represents the State’s share of Tier I funding. Under this methodology, a district’s wealth factors significantly into its share of state funding. The higher the wealth per student, the higher the proportional deduction from the Tier I total.

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Factors Affecting Financial Condition (continued)

State Funding and Tax Levy (continued)

Tier II of the formula rewards the tax effort of a district by guaranteeing that tax effort in the current year, beyond the required local share of Tier I, will yield a minimum amount of money per weighted student in average daily attendance (WADA). In Tier II, for the first six pennies of tax above the compressed rate, the State will subsidize tax receipts as needed to produce a guaranteed level of revenue per student per penny of property tax levy. The guaranteed yield for those six pennies is $106.28 for 2018-19. The guaranteed yield on any additional pennies above the compressed rate plus six cents (up to the maximum rate of $1.17) is fixed at $31.95 for all years.

In summary, State formula funding decreased by $9.4 million from 2017-18 to 2018-19, resulting from the decrease in enrollment, and the increase in the local fund assignment due to the increases in property value. However, the decrease was offset by a one-time adjustment of $10.7 million for school districts experiencing declines in local tax collections because of Hurricane Harvey.

The 2011-12 and 2012-13 budgets did not include a permanent salary increase due to a reduction in funding from the State. For the 2012-13 fiscal year, the Board approved a $1,000 supplement for all eligible employees. Fortunately, funds for staff salary increases were again available beginning in 2013-14 for the next five years. Each 1% salary increase costs the district approximately $2.7 million. Due to budget constraints, the District was not able to approve a salary increase/cost of living adjustment for staff for 2018-19. The District still retains a competitive advantage in the total compensation package when compared to area districts since salaries were strong in 2017-18. Many surrounding districts also did not provide a salary increase for 2018-19. Alief maintains an excellent benefit level in the health insurance plan with relatively low premiums. New positions were minimized (net 4.5 positions) during the budget process with only those most directly tied to District priorities approved. The required tax rate is calculated after determining the necessary level of expenditures to meet District’s educational goals and facility requirements and estimating state aid. The general fund tax rate adopted by the Board for 2008-09 was $1.125 which exceeded the rollback tax rate and required a voter election. The voters approved this rate at the election held on November 20, 2008. The general fund tax rate remains at $1.125 for 2018-19. Fund Balance

General Fund – The District strives to maintain a general fund balance equal to approximately two months of operating expenditures.

Debt Service Fund – The District strives to maintain a debt service fund balance (excluding the reserve funds for the Qualified School Construction Bonds) of not more than 1/12 of the preceding year’s required principal and interest payments for all outstanding bonds.

Food Service Program – The fund balance for food service should not exceed three months of average food service operating expenditures.

Major Initiatives and Accomplishments In September 2003, the voters in the Alief Independent School District approved a $175.0 million bond referendum. The District has issued nine installments from this referendum totaling $165.7 million. The District does not currently have plans to issue the remainder in the near future. In an election on May 9, 2015, the voters approved a bond referendum totaling $341.0 million by a vote of 830 (72.3%) for to 318 against. A community led Bond Steering Committee began meeting in the fall of 2014 and presented to the Alief School Board in February, 2015. Major projects include in this referendum are: a center for advanced careers, a multi-purpose center, a fine arts addition at Kerr High School, gymnasium additions at each middle school, facilities for Pre-K expansion, school buses, and other district renovations. The authorized $341.0 million was planned to be issued over 6 years starting 2016. The District has issued four installments totaling $228.0 million.

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Major Initiatives and Accomplishments (continued) The 2018-19 financial structure of the Alief Independent School District provided support to work toward or accomplish the following goals:

1. Prepare all students for success in one or more post-secondary opportunities: technical institutions orworkforce programs, two-year colleges, four-year colleges or universities, military, and workforcereadiness.

The 2015 bond referendum included $76.6 million for the construction of a state of the art Alief Center for Advanced Careers (ACAC) to meet the needs of our 8,500+ students who are enrolled in Career and Technology Education (CTE) courses. The ACAC opened for the 2018-19 school year. The general fund budget includes 9 additional CTE teachers for $0.5 million as well as 21.5 other positions for the ACAC budgeted at $0.6 million. $185,000 was budgeted for Princeton Review and $295,000 was budgeted for dual credit textbooks. $63,000 was budgeted for AVID which is a global nonprofit organization dedicated to closing the achievement gap by preparing all students for college and other post-secondary opportunities. $90,000 was budgeted for the fifth year with Naviance which is a comprehensive college and career readiness solution for middle and high schools that helps connect academic achievement to post-secondary goals. $40,000 was budgeted for Texas Success Initiative assessments.

2. Improve quality standards for all Early Childhood Programs that result in more Pre-K Student Cohortsreading on grade level by the third grade. (A cohort is defined as students who begin in an Alief ISDEarly Childhood Program and remain in Alief ISD through the end of third grade.)

There is no staffing ratio requirement for Pre-K, but Alief staffs Pre-K at a ratio level of 11:1 (adult/child) which is half of the state required ratio of 22:1 for Kinder through fourth grade. Maintaining this low ratio has a significant recurring impact on the budget. For 2018-19, we added 2 Pre-K aides for $50,000 to maintain these ratios.

3. Explore, develop, and expand meaningful educational experiences for students as a District ofInnovation.

HB 1842 was passed during the 84th Texas Legislative Session in spring, 2015, and provides Texas public school districts the opportunity to be designated as Districts of Innovation. District of Innovation may be exempted from a number of state statues and will have: 1) greater local control as the decision makers over the educational and instructional model for students; 2) increased freedom and flexibility, with accountability, relative to state mandates that govern educational programming; and 3) empowerment to innovate and think differently. Alief received this designation as a District of Innovation in 2016-17. For 2018-19, the International School and Life Sciences Innovative Academy are being offered to high school students. Two new positions were budgeted in the general fund – a Dean of Innovative Academy for $86,000 and a Life Sciences Academy Counselor for $76,000. An additional $48,000 was budgeted for start-up costs for the programs.

4. Efficiently and effectively manage taxpayer funds, capital improvement plans, and research additionalfunding avenues while improving human capital recruitment, retention, and utilization to best improvestudent achievement.

The 2018-19 budget does not include any tax rate increase. The Pre-K Task Force meets regularly to evaluate the many components of full day Pre-K. The 2018-19 budget includes $25,000 for a planned Pre-K survey and $10,000 for other task force costs. The budget for the Board includes $40,000 for dues and memberships to organizations that represent the District in the legislative process. Recruitment and retention of staff is a priority every year. Unfortunately, for 2018-19, the District wasn’t able to give a salary increase. However, we provide our employees a very affordable and high coverage health insurance plan in comparison to area districts. The District continued to increase general fund contributions to the self-funded health insurance plan to cover rising costs without increasing premiums for employees. General fund expenditures for health insurance have increased $3.2 million from 2017-18.

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Major Initiatives and Accomplishments (continued) 5. Improve student and staff safety through review, drills, training and modifications of structures,

processes and methods.

The District has its own police force consisting of 48 officers and 5 dispatchers. The 2018-19 budgetincludes one additional police officer. A Security Assessment Review team is in-charge of reviewingour systems and determining areas where improvement is needed. At the end of 2017-18, the Districtpurchased 3 canine officers trained to detect fire-arms. District’s capital projects fund also budgeted$100K to equip 3 SUV’s thereafter.

For the 2019 accountability ratings from the Texas Education Agency (TEA), Alief received an overall grade of a B with a score of 85, and 90% of our campuses received A’s, B’s, or C’s from the new accountability system. Among the campuses, Alief Early College High School, Kerr High School, Albright Middle School, and Miller Intermediate School were awarded an overall rating of A. 51% of Alief campuses were awarded one or more Distinction Designations. Budewig Intermediate School met all eligible Distinction Designations in the accountability system. TEA awards these distinctions in the areas of English language arts, math, science, social studies, closing the gap, academic growth, and post-secondary readiness. Alief schools earned 71 distinctions from the TEA.

In addition, the District has been named one of Houston’s Top Workplaces by the Houston Chronicle for the fourth consecutive year since 2016.

Awards and Acknowledgements The Association of School Business Officials International (ASBO) awarded a Certificate of Excellence in Financial Reporting to the Alief Independent School District for its Comprehensive Annual Financial Report for the fiscal year ended August 31, 2018. We believe that our current report continues to conform to the high standards of the certificate of excellence program, and we are submitting it to ASBO.

In addition, the Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Alief Independent School District for its Comprehensive Annual Financial Report for the fiscal year ended August 31, 2018.

In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, whose contents conform to program standards. Such reports must satisfy both accounting principles generally accepted in the United States of America and applicable legal requirements. District has participated in the programs for over 31 years.

A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to the Certificate of Achievement Program requirements, and we are submitting it to the GFOA.

The District also received the ASBO’s Meritorious Budget Award (MBA) for its annual budget document. In order to qualify for the budget award, the budget document was judged to be proficient in several categories as specified by the ASBO. Alief was recognized by the ASBO as one of 41 school districts nation-wide that have participated in the MBA program for more than 15 years.

Alief is proud to have received for 17 consecutive years the highest rating under the Schools FIRST (Financial Integrity Rating System of Texas), a financial accountability system for Texas school districts developed by the Texas Education Agency. The primary goal of Schools FIRST is to ensure quality performance in the management of school districts’ financial resources.

8

Awards and Acknowledgements (continued) The State has launched the Texas Comptroller Leadership Circle program in 2009 to recognize local governments across Texas that are striving to meet a high standard for financial transparency by posting the annual budget, the annual financial report, and the check register online to provide a clear and consistent picture of spending to the public. The public expectation for government transparency has changed dramatically since then which caused the State to launch a new Transparency Stars program in 2016. This new program recognizes local governments that go above and beyond previous standards for including downloadable datasets, visual representations of information, and bulleted lists of key figures. Alief ISD had been awarded transparency stars in Traditional Finances and Debt Transparency. The District has been practicing the recommended procedures long before the program was implemented and has received the awards for ten consecutive years.

The financial management staff of the Alief Independent School District wishes to express its appreciation to the Board of Trustees for their concern in providing fiscal accountability to the patrons of the District and thereby contributing their full support in the development of one of the best educational financial operations within the State of Texas. The preparation of this report could not have been accomplished without the dedicated services of the District’s Accounting Department as well as the technical support provided by the independent auditing firm of Whitley Penn, L.L.P. Sincere appreciation is extended to those personnel who assisted and contributed to the preparation of the Comprehensive Annual Financial Report.

Sincerely,

Mr. HD Chambers Mr. Charles Woods Superintendent Deputy Superintendent of Business Services

Ms. Deanna Wentz Assistant Superintendent of Finance

9

The Certificate of Excellence in Financial Reporting

is presented to


for its Comprehensive Annual Financial Report (CAFR)

for the Fiscal Year Ended August 31, 2018.

The CAFR meets the criteria established for

ASBO International’s Certificate of Excellence.

Tom Wohlleber, CSRM David J. Lewis

President Executive Director

10

Financial Section

Houston Office 3737 Buffalo Speedway Suite 1600 Houston, Texas 77098 713.621.1515 Main

whitleypenn.com

REPORT OF INDEPENDENT AUDITORS

To the Board of Trustees Alief Independent School District Houston, Texas

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Alief Independent School District (the “District”) as of and for the year ended August 31, 2019, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

13

To the Board of Trustees Alief Independent School District Page 2

Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the District, as of August 31, 2019, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 16 through 27 and budgetary comparison information, pension and OPEB information on pages 75 through 84 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District’s basic financial statements. The other supplementary information (as listed in the accompanying table of contents) and other information, such as the introductory and statistical section, are presented for the purposes of additional analysis and are not a required part of the basic financial statements. The other supplementary information (as listed in the accompanying table of contents) is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information (as listed in the accompanying table of contents) is fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

14

To the Board of Trustees Alief Independent School District Page 3

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated January 21, 2020, on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance.

Houston, Texas January 21, 2020

15

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Management's Discussion and Analysis

In this section of the comprehensive annual financial report, we offer readers of the District’s financial statements a narrative overview and analysis of the financial activities of the District for the fiscal year ended August 31, 2019. Please read it in conjunction with the independent auditors' report and the District's financial statements, which follow this section.

Financial Highlights

The assets and deferred outflows of resources of the District exceeded its liabilities and deferredinflows of resources at the close of the fiscal year by $69,112,710 (net position).

The District’s net position decreased $4,719,410 as a result of this year’s operations.

The District’s governmental funds reported combined ending fund balances of $195,001,425.Approximately 39% of this total amount, $76,994,579, is available for spending at the government’sdiscretion (unassigned fund balance).

The combined ending fund balances for the District’s governmental funds increased by $35,106,334.

The General Fund ended the year with an unassigned fund balance of $76,994,579 or 18% of thetotal general fund expenditures, a slight increase from prior year.

Overview of the Financial Statements

This annual report consists of a series of financial statements plus additional supplemental information as required by its state oversight agency, the Texas Education Agency (TEA). The District’s basic financial statements consist of three sections: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. The following sections describe the measurement focus of the two types of statements and the significant differences in the information they provide.

Government-wide Financial Statements The focus of government-wide financial statements is on the overall financial position and activities of the District. The District’s government-wide financial statements include the statement of net position and the statement of activities (on pages 28 and 29), which are prepared using accounting principles that are similar to commercial enterprises. These statements provide information about the activities of the District as a whole and present a longer-term view of the District's property and debt obligations and other financial matters.

The statement of net position includes all the District's assets, deferred outflows of resources, liabilities, and deferred inflows of resources at the end of the year, with the difference among these elements reported as net position. This difference is similar to the total owner’s equity presented by a commercial enterprise. Net position is one way to measure the District’s financial health or position. Over time, increases or decreases in the District’s net position are an indicator of whether its financial health is improving or deteriorating, respectively. To fully assess the overall health of the District, however, other factors should be considered as well, such as changes in the District's average daily attendance or its property tax base and the condition of the District's capital assets.

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Management's Discussion and Analysis (continued)

The purpose of the statement of activities is to present the revenues and expenses of the District. Again, the items presented on the statement of activities are measured in a manner similar to the approach used by a commercial enterprise in that revenues are recognized when earned or established criteria are satisfied, and expenses are reported when incurred by the District. Thus, revenues are reported even when they may not be collected for several months or years after the end of the accounting period, and expenses are recorded even though they may not have used cash during the current period.

The District's revenues are divided into those provided by outside parties who share the costs of some programs, such as tuition received for summer school and grants provided by the U.S. Department of Education to assist children with disabilities or from disadvantaged backgrounds, and revenues provided by the taxpayers or by TEA in the equalization funding processes (general revenues). Although the statement of activities looks different from a commercial enterprise’s income statements, the financial statement is different only in format, not substance.

The District has no component units for which it is financially accountable.

Fund Financial Statements Fund financial statements (starting on page 30) report the District's operations in more detail than the government-wide statements by providing information about the District's most significant funds – not the District as a whole. For governmental activities, these statements tell how services were financed in the short term, as well as what resources remain for future spending. They reflect the flow of current financial resources, and supply the basis for tax levies and the appropriations budget. For proprietary activities, fund financial statements tell how goods or services of the District were sold to departments within the District or outside parties and how the sales revenues covered the expenses of the goods or services. The remaining statements, fiduciary statements, provide financial information about activities for which the District acts solely as a trustee or agent for the benefit of those outside of the district.

Laws and contracts require the District to establish some funds, such as the debt service fund. The District's administration establishes other funds to help it control and manage money for particular purposes.

All of the District’s funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds.

Governmental funds – Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide reconciliation to facilitate this comparison between governmental funds and governmental activities.

17


The District maintains several individual governmental funds organized according to their type (special revenue, debt service and capital projects). Information is presented separately in fund financial statements for the general fund, special revenue fund, debt service fund, and capital projects fund. These funds are all considered major funds. The District adopts an annual appropriated budget for its general fund, food service program within the special revenue fund, and debt service fund. Budgetary comparison schedules have been provided to demonstrate compliance with these budgets.

Proprietary funds – Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. There are two proprietary fund types – enterprise and internal service funds. The enterprise funds are used to report the same functions presented as business type activities in the government-wide financial statements. In the enterprise fund, the District would charge outside customers a fee for services the District provides. The District has no business-type activities or enterprise funds. The internal service funds are an accounting device used to accumulate and allocate costs internally among the various functions. The District uses the internal service fund to report activities for its self-funded insurance programs. The basic proprietary fund financial statements can be found on pages 35-37 of this report. Fiduciary funds – Fiduciary funds are used to account for resources held for the benefit of parties outside the government. The District is the trustee, or fiduciary, for money raised by student activities. All of the District’s fiduciary activities are reported in a separate Statement of Assets and Liabilities on page 38 and a Statement of Changes in Assets and Liabilities on page 90. We exclude these resources from the District’s other financial statements because the District cannot use these assets to finance its operations. The district is only responsible for ensuring that the assets reported in these funds are used for their intended purposes.

Notes to the basic financial statements The notes to the financial statements (starting on page 39) provide narrative explanations or additional data needed for full disclosure in the government-wide statements or the fund financial statements.

Other information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information that further explains and supports the information in the financial statements. Required supplementary information can be found on pages 75-84 of this report. Other supplementary information including combining statements and compliance schedules can be found on pages 85-92 of this report.

18


Government-Wide Financial Analysis

The District’s overall financial position and operations for the past two years are summarized as follows, based on the information included in the government-wide financial statements.

The District’s total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources by $69,112,710. Net Investment in capital assets (e.g., land, buildings, furniture and equipment), less any related debt used to acquire those assets that is still outstanding is $282,464,670. Although the District’s debt issuances are used primarily to acquire capital assets, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the District’s net position (approximately 43%) represents resources that are subject to external restrictions on how they may be used.

Unrestricted net position reflects a deficit of $243,034,201. Although the District reports a deficit, the deficit is primarily due to the implementation of the Government Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Post-employment Benefits Other Than Pensions in 2017-18. The implementation of GASB No. 75 has no impact on the District’s governmental fund financial statements, which continue to report expenditures in the contribution amount determined legislatively. However, it has resulted in the restatement of the District’s beginning net position for the fiscal year 2018 government-wide financial statements to reflect the reporting of net OPEB liability and deferred outflows of resources for its OPEB plan and the recognition of OPEB expense in accordance with the provisions of the Statement. The total district liability is reported in the governmental activities but the actual liability does not require the use of current resources at the fund level, which results in a timing difference since the TRS-Care plan is funded on a pay-as-you-go basis. The District has made all contractually required contributions as noted in the Required Supplementary Information and has sufficient fund balance to meet the District’s ongoing obligations to students and creditors. The decrease of $12.2 million in unrestricted net position relates to the changes in the District’s proportionate share of the deferred outflows/inflows from pension activities and net pension liability.

The increase in net pension liability is mainly due to the change in long-term assumed rate of return combined with the change in the single discount rate. The increase in net OPEB liability relates to the adjustments for retirees who discontinued health care coverage, changes in healthcare trend rate assumption, demographic and economic assumptions, discount rate, and benefit terms. Refer to Notes 11 and 12 for more information.

The changes in deferred outflows/inflows from pension activities are attributable to the changes in actuarial assumptions and the change in the District’s proportionate share of the plans.

The increase of $12,459,200 in capital assets, net of accumulated depreciation, directly relates to the bonds issued according to the 2015 bond referendum, which also caused the net increase in bonds payable and increase in cash and cash equivalents.

19


Net Position Summary

August 31, August 31, Increase (Decrease)

2019 2018 Amount

Cash and cash equivalents 184,399,013$ 151,715,870$ 32,683,143$

Investments 31,715,523 32,735,900 (1,020,377)

Receivables 31,655,543 30,681,381 974,162

Inventories, at cost 982,921 1,354,837 (371,916)

Prepaid items 9,707 8,459 1,248

Capital assets, net of

accumulated depreciation 529,588,442 517,129,242 12,459,200

Total assets 778,351,149 733,625,689 44,725,460

Deferred loss on refunding 2,471,469 2,960,608 (489,139)

Deferred outf low s from pension activities 98,661,122 44,938,741 53,722,381

Deferred outf low s from OPEB activities 20,715,971 2,913,749 17,802,222

Total deferred outflows

of resources 121,848,562 50,813,098 71,035,464

Accounts payable 11,818,892 14,407,669 (2,588,777)

Interest payable 480,683 419,297 61,386

Payroll deductions 3,451,824 3,297,842 153,982

Accrued w ages payable 19,811,288 18,572,164 1,239,124

Due to other governments 1,558,264 4,528,802 (2,970,538)

Unearned revenue 123,518 182,341 (58,823)

Bonds payable 311,110,254 276,516,129 34,594,125

Capital leases payable 307,843 608,619 (300,776)

Claims payable 4,725,764 4,809,293 (83,529)

Compensated absences 5,842,278 5,385,221 457,057

Net pension liability 182,744,598 110,627,732 72,116,866

Net OPEB liability 208,851,168 179,321,045 29,530,123

Total liabilities 750,826,374 618,676,154 132,150,220

Deferred inflow s from pension activities 14,216,857 16,920,181 (2,703,324)

Deferred inflow s from OPEB activities 66,043,770 75,010,332 (8,966,562)

Total deferred inflows

of resources 80,260,627 91,930,513 (11,669,886)

Net position:

Net investment in capital assets 282,464,670 277,853,365 4,611,305

Restricted 29,682,241 26,777,037 2,905,204

Unrestricted (243,034,201) (230,798,282) (12,235,919)

Total net position 69,112,710$ 73,832,120$ (4,719,410)$

Governmental Activities

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Changes in Net Position

August 31, August 31, Increase (Decrease)

2019 2018 Amount

Revenues

Program revenues:

Charges for services 8,479,940$ 8,069,618$ 410,322$

Operating grants/contributions 129,720,192 13,437,364 116,282,828

General revenues:

Property taxes 203,024,941 197,094,584 5,930,357

State aid - non restricted to

specif ic programs 220,803,920 219,522,152 1,281,768

Other 5,716,852 4,685,560 1,031,292

Total revenues 567,745,845 442,809,278 124,936,567

Expenses

Instruction and instructional 361,536,525 222,044,841 139,491,684

related servicesrelated services

Instructional/school leadership 37,457,043 22,733,651 14,723,392

Support services - student 93,966,833 67,940,799 26,026,034

Administrative support services 14,612,640 10,497,468 4,115,172

Support services -

non-student based 50,114,105 43,083,133 7,030,972

Ancillary services 3,708,433 2,463,453 1,244,980

Debt service 8,643,564 8,309,075 334,489

Intergovernmental charges 2,426,112 2,229,637 196,475

Total expenses 572,465,255 379,302,057 193,163,198

Change in net position (4,719,410) 63,507,221 (68,226,631)

Net position - beginning 73,832,120 324,763,269 (250,931,149)

Prior period adjustment - (314,438,370) 314,438,370

Net position - ending 69,112,710$ 73,832,120$ (4,719,410)$


21


Governmental activities. Net position of the District's governmental activities decreased $4,719,410. The total cost of all governmental activities this year was $572,465,255, an increase of $193,163,198 from previous year. The amount that the District’s taxpayers paid for these activities through property taxes was $203,024,941 or 35% of the total cost, a decrease from prior year.

$-

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

2018-19 2017-18

Governmental Activity Revenue

Charges for services

Operating grants/ contributions

Property taxes

State revenues-unrestricted

Other

Significant changes in revenues and expenses include:

Revenues increased by $124.9 million for the fiscal year ended August 31, 2019, mainly in the operating grants and contributions. The increase was related to the overall reduction in the OPEB liability resulting in a negative on-behalf adjustment of $83.9 million with the implementation of GASB 75 in 2017-18.

The increase of $5.9 million in property taxes revenue is due to the 2% increase in property value.

The increase of $193.2 million in functional expenses is primarily due to the changes in pension and OPEB expenses and the above mentioned negative on-behalf adjustment in 2017-18.

Over 63% of the District’s expenses were expended for instruction and instructional related services, an increase from last year. About 86% of the District’s expenses were for direct student based services.

Total expenses above include depreciation of $20.7 million. Capital outlay of $34.9 million is not included in the above total expenses. In the government-wide financial statements, capital outlay is shown as an increase in the capital assets reported on the statement of net position and depreciation expense is recorded in the statement of activities in order to spread recognition of the cost of capital assets over their useful lives.

Financial Analysis of the District’s Funds

As noted earlier, the District uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Governmental funds. The focus of the District’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the District’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year.

22


As of the end of the current fiscal year, the District’s governmental funds reported combined ending fund balances of $195,001,425, an increase of $35,106,334 from last year. Approximately 39% of the total amount, $76,994,579, constitutes unassigned fund balance. The remainder of the fund balance is nonspendable, restricted, committed, or assigned for particular purposes as follows: 1) nonspendable for inventories-$871,283; 2) restricted for debt service-$23,408,583, food service-$5,298,734, and capital acquisitions and contractual obligations-$61,822,856; 3) committed for capital improvement to facilities-$9,986,356, technology equipment and bus replacement-$3,500,000, self-funded insurance-$3,000,000, potential federal sequestration-$1,500,000, and campus activities-$1,688,294; 4) assigned for outstanding encumbrances-$1,088,462 and compensated absences-$5,842,278.

Nonspendable1%

Committed,10%

Restricted, 46%

Assigned,4%

Unassigned, 39%

2018-19Nonsepndable,

1%

Committed, 13%

Restricted,38%

Assigned, 3%

Unassigned, 45%

2017-18

The general fund is the primary operating fund of the District. At the end of the current fiscal year, unassigned fund balance of the general fund was $76,994,579, while the total fund balance was $100,296,602. The fund balance of the general fund increased $6.3 million from previous year. The local property tax revenues increased $4.7 million due to a 2% increase in property value for current tax year. The State Foundation School Program formula calculates state and local share using property values from the prior tax year. For 2018-19, the local share is based on 2017 local taxable values, before the full impact of Hurraine Harvey was felt. A one-time adjustment of $10.7 million from the State offset the funding loss for the decline in enrollment. The $3.5 million increase in expenditures relates to the reclassification of expenditures to the special revenue fund for the grants received from the Texas Hurricane Emergency Impact Aid ($1.6 million), and the Restart Hurricane Recovery Grant ($2.7 million) in 2017-18. As a measure of the general fund’s liquidity, it may be useful to compare unassigned fund balance to the total fund expenditures. Unassigned fund balance represents 18% of the total general fund expenditures, a slight increase from previous year. Food service fund balance at the end of 2018-19 was $5,298,734, a decrease of $0.2 million from previous year, mainly for the freezer renovation project at the warehouse. The fund balance for food service should not exceed three months of average food service operating expenditures. The fund balance at year end is below three months of average food service operating expenditures.

The debt service fund balance increased to $23,408,583 that is reserved for the payment of debt service. The tax rate was $0.205 for 2018-19, no change from the 2017-18 rate. Projections prepared for the Bond Steering Committee and Board of Trustees, and widely publicized prior to the 2015 bond referendum indicated that the anticipated impact of issuing the $341 million in new debt is a projected tax rate increase of 8.5 cents over 6 years. Current projections indicate that the projected increase may only be 6.5 cents. Even with these rate increases, the district will still have one of the lowest debt service tax rates in Harris County. The fund balance (net of reserve accounts for the Qualified School Construction Bonds (QSCB) is currently above the District’s benchmark of 1/12th of the preceding year’s expenditures by $0.9 million. The District intends to utilize this reserve in coming years in order to minimize the impact on the tax rate from the 2015 bond referendum.

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Fund balance for the capital projects fund at August 31, 2019 was $64,309,212. As a result of unspent bond proceeds in previous years, the fund began the year with $38,598,473 in fund balance. The Board approved an issuance of schoolhouse bonds with principal of $51.9 million. The District spent $33.4 million in the current year on various projects. The remaining fund balance is for future projects, including multi-purpose center, HVAC renovation at Elsik High School, and various improvement projects throughout the District as outlined in the District’s Long-Range Plan for facilities. Proprietary Funds. The District’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail.

The internal service fund is used to account for District’s self-funded insurance programs. The health insurance fund experienced an increase of $1,031,240 in net position resulting in a balance of $1,707,390 at August 31, 2019. The increase was due to additional District’s contributions. The worker’s compensation fund’s fund balance decreased slightly by $48,857.

General Fund Budgetary Highlights

Over the course of the year, District personnel recommended, and the Board of Trustees approved, several revisions to budgeted revenues and appropriations. Revisions to the revenue budget were necessary due to changes in estimates for local and state revenue. Revisions to appropriations were necessary due to changes in spending needs over the course of the year, and other unexpected occurrences.

The District’s major budget amendments during the year are summarized as follows:

The expenditure budget was increased by $6.9 million to reflect year-end payroll and benefits projection mainly for payroll accrual and ever increasing health insurance cost, $0.8 million for technology equipment and software, $0.7 million for contracted nurses for special education students, $0.6 million for repairs to buildings district-wide, $0.3 million for transporting homeless students, $0.3 million for bus repair and parts, $0.3 million for textbooks and testing materials, and $0.1 million for equity audit.

The revenue budget was amended based on modified projections: a $6.5 million increase in state funding resulted from the property value audit and prior year settle-up, and a $2.0 million increase for the federal SHARS Medicaid reimbursement program.

The expenditure and revenue budgets were also increased by $1.4 million and $1.3 million, respectively for building repairs due to fire damage occurred in May 2019. District is liable for the insurance deductible up to $100,000.

After revenue budgets and appropriations were adjusted as described, the District’s general fund balance of $100,296,602 differs from the final budgetary fund balance of $90,948,003 reported in the budgetary comparison schedule on page 75. This is primarily due to expenditures that were less than final budgeted amounts. Various expenditure categories came in under the adjusted budget, including payroll ($5.7 million), various capital projects ($0.7 million), electricity ($0.5 million), instructional supplies and materials ($0.5 million), travel for students and staff ($0.4 million). contracted services for special education ($0.3 million), and textbooks and reading materials ($0.3 million).

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Capital Assets and Debt Administration

Capital Assets The District’s investment in capital assets for its governmental activities as of August 31, 2019, amounts to $529,588,442 (net of accumulated depreciation of $416,956,293). This investment in capital assets includes facilities and equipment for instruction, transportation, athletics, administration, and maintenance. The net increase in the District’s investment in capital assets for the current year was $12,459,200. Additional information on the District’s capital assets can be found on pages 54-55 in the notes to the financial statements.

Capital Asset Summary


August 31, August 31,

2019 2018

Land 72,887,811$ 65,822,882$

Buildings and improvements 416,846,177 346,443,563

Furniture and equipment 27,111,043 29,302,673

Construction in progress 12,743,411 75,560,124

Total capital assets

(net of depreciation) 529,588,442$ 517,129,242$

Debt At year-end, the District has the following long-term liabilities:

General Obligation Bonds 311,110,254$ 276,516,129$

Capital Leases Payable 307,843 608,619

Compensated Absences 5,842,278 5,385,221

Claims Payable 4,725,764 4,809,293

Net Pension Liability 182,744,598 110,627,732

Net OPEB Liability 208,851,168 179,321,045

Totals 713,581,905$ 577,268,039$

August 31,

2019

August 31,

2018


Bonded Debt – The District’s bonded debt increased by $34.6 million at year-end. The District retired $21,285,000 and issued $58,370,000 in unlimited tax schoolhouse and refunding bonds. Of which, $51,925,000 was for schoolhouse bonds approved by the voters in the 2015 bond referendum. The other $6,445,000 was in unlimited tax refunding bonds to refund $6,685,000 of Series 2010 bonds.

The ratio of net general bonded debt to assessed valuation is a useful indicator of the District’s debt position. This data for the past 10 years is presented in the statistical section on page 109.

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On April 2, 2019, Moody’s downgraded the District’s underlying rating from “Aa1” to “Aa2” and assigned a stable outlook, mainly due to recent reserve declines. However, the municipal rating of “AAA” on the District’s bonds reflected the Texas Permanent School Fund (PSF) guarantee. Pension – The District experienced a $72.1 million increase in its portion of the TRS net pension liability. OPEB – District’s portion of the net OPEB liability increased by $29.5 million from prior measurement period.

More detailed information about the District's long-term liabilities is presented on pages 55-57 and 59-71 in the notes to the basic financial statements.

Economic Factors and Next Year's Budgets and Rates

As part of the budget development process, the District’s management has taken into consideration the factors that drive school district budgets: enrollment, property value, state funding, facility needs, and the economy. The District's elected and appointed officials considered these and other factors when setting the fiscal year 2020 general fund budget and tax rate. The adopted budget is based on the following significant assumptions:

In 2018-19, enrollment decreased by 732 (1.6%). The projected enrollment for 2019-20 is 45,299 – a decrease of 0.7% or 317 students. Further analysis and detailed enrollment projections by grade level can be found in the District Long-Range Plan document that is updated and reviewed with the Board of Trustees in February of each year.

General fund revenues are projected to increase $33.2 million compared to the final 2018-19 general fund revenues. The significant increase is due to the Legislative changes with the passage of House Bill 3 (HB 3). HB 3 made fairly sweeping changes to the State funding formula. The major changes included a significant increase in the basic allotment, an Early Education Allotment, a College, Career, Military Readiness Outcomes Bonus, a Dyslexia Allotment, as well as significant increases in compensatory education funding and special education funding. Also, included in HB 3 was a change to the use of current year values in computing the district local share of the allotments.

The general fund expenditure budget for 2019-20 is projected to be at $457.6 million, an increase of $27.3 million from prior year. The majority ($20.7 million) of this increase is due to salary increases. HB 3 included a mandated salary increase for all non-administrator employees with an emphasis on compensation increases for teachers. The Board approved a 6% of the midpoint increase for all staff excluding teachers. Teachers with 1-5 years of experience received the 6% of midpoint plus $500. Teachers with 6+ years of experience received an additional $1,500 above the 6% standard increase. Beginning teacher’s salary was raised to $57,400.

The education of students is a labor-intensive process and payroll expenditures comprise approximately 89% of the general fund budget. In addition to above mentioned salary increase, 56.5 new positions were approved during the budget process at a total estimated cost of $2 million.

The tax rate was calculated after determining the necessary level of expenditures to meet District’s educational goals and facility requirements and estimating State aid. The Board adopted the tax rate of $1.125 for maintenance and operations for past 11 years. Tax compression was mandated by the HB 3 in 2019, resulting in a general fund rate of $1.0391 for 2019-20. The debt service portion of the tax rate is $0.205 for 2019-20, no change since 2017-18. District continues to have one of the lowest debt service tax rates in Harris County.

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Requests for Information

This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. Questions concerning any of the information provided in this report, or requests for additional information, should be addressed to the Office of the Assistant Superintendent of Finance, Alief ISD, 4250 Cook Road, Houston, Texas, 77072.

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Basic Financial Statements

Exhibit A-1

Data

Control Governmental

Codes Activities

1110 Cash and cash equivalents 184,399,013$

1120 Investments 17,142,735

Receivables:

1220 Property taxes 11,639,616

1230 Allowance for uncollectible taxes (1,786,928)

1240 Due from other governments 19,053,745

1250 Accrued interest 166,272

1290 Other receivables 2,582,838

1300 Inventories, at cost 982,921

1410 Prepaid items 9,707

1910 Long-term investments 14,572,788

Capital assets, net of accumulated depreciation

1510 Land 72,887,811

1520 Buildings and improvements, net 416,846,177

1530 Furniture and equipment, net 27,111,043

1580 Construction in process 12,743,411

1000 Total Assets 778,351,149

Deferred Outflows of Resources

1700 Deferred loss on refunding 2,471,469

1705 Deferred outflows from pension activities 98,661,122

1706 Deferred outflows from OPEB activities 20,715,971

Total Deferred Outflows of Resources 121,848,562

2110 Accounts payable 11,818,892

2140 Interest payable 480,683

2150 Payroll deductions and withholdings 3,451,824

2160 Accrued wages payable 19,811,288

2180 Due to other governments 1,558,264

2300 Unearned revenue 123,518

2501 Due within one year

Bonds payable 20,070,000

Capital leases payable 307,843

Claims payable 4,435,679

Compensated absences 829,453

2530 Due in more than one year

Bonds payable, net of premium 291,040,254

Claims payable 290,085

Compensated absences 5,012,825

2540 Net pension liability 182,744,598

2545 Net OPEB liability 208,851,168

2000 Total Liabilities 750,826,374

Deferred Inflows of Resources

2605 Deferred inflows from pension activities 14,216,857

2606 Deferred inflows from OPEB activities 66,043,770

Total Deferred Inflows of Resources 80,260,627

Net Position

3200 Net investment in capital assets 282,464,670

Restricted for:

3820 Food Service 5,298,734

3850 Debt Service 24,383,507

3900 Unrestricted (243,034,201)

Total Net Position 69,112,710$

The accompanying notes to the basic financial statements are an integral part of this statement.


Statement of Net Position

August 31, 2019

Assets

Liabilities

28

Exhibit B-1

Net (Expense),

Revenue and

Changes in Net

Position

Primary Government

Data Operating

Control Charges Grants and Governmental

Codes Functions/Programs Expenses for Services Contributions Activities

11 Instruction 343,692,220$ 148,398$ 68,785,457$ (274,758,365)$

12 Instructional resources and media services 6,259,287 664,278 (5,595,009)

13 Curriculum & instructional staff development 11,585,018 5,811,211 (5,773,807)

21 Instructional leadership 6,659,739 1,621,140 (5,038,599)

23 School leadership 30,797,304 2,804,687 (27,992,617)

31 Guidance, counseling, & evaluation services 23,253,221 2,413,449 (20,839,772)

32 Social work services 863,224 454,243 (408,981)

33 Health services 7,619,484 6,193,256 (1,426,228)

34 Student transportation 21,145,693 4,491 4,619,491 (16,521,711)

35 Food services 30,417,392 2,261,953 26,963,115 (1,192,324)

36 Extracurricular activities 10,667,819 4,154,732 2,257,819 (4,255,268)

41 Administrative and support services 14,612,640 1,713,406 (12,899,234)

51 Facilities maintenance and operations 38,671,219 1,142,644 1,907,284 (35,621,291)

52 Security and monitoring services 7,549,429 291,506 691,212 (6,566,711)

53 Data processing services 3,893,457 241,988 (3,651,469)

61 Community services 3,708,433 476,216 733,874 (2,498,343)

72 Interest on long-term debt 8,643,564 1,844,282 (6,799,282)

93 Payments to fiscal agent 687,588 (687,588)

95 Payments to JJAEP 220,201 (220,201)

99 Payments to appraisal district 1,518,323 (1,518,323)

TG Total governmental activities 572,465,255 8,479,940 129,720,192 (434,265,123)

Data

Control

Codes General revenues:

MT Property taxes, levied for general purposes 171,743,465

DT Property taxes, levied for debt service 31,281,476

SF State aid - not restricted to specific programs 220,803,920

IE Investment earnings 5,641,143

MI Miscellaneous revenue 75,709

TR Total general revenue 429,545,713

CN Change in net position (4,719,410)

Net position - beginning 73,832,120

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